What is the cash-flow-to-net-income ratio for 20X2 given cash from operations $5,964 and net income $2,430?

Rationale

The cash-flow-to-net-income ratio for 20X2 is 2.45.

The cash-flow-to-net-income ratio is calculated by dividing cash from operations by net income. In this case, dividing $5,964 by $2,430 yields a ratio of approximately 2.45, indicating that cash generated from operations is more than double the net income.

A (1.35) YOUR ANSWER

This option suggests a ratio indicating that cash from operations is significantly less than net income. To achieve a ratio of 1.35, cash from operations would need to be approximately $3,280, which does not reflect the provided cash from operations of $5,964. Therefore, this choice is incorrect.

B (2.45) CORRECT

This choice accurately represents the cash-flow-to-net-income ratio, calculated by dividing $5,964 by $2,430, which results in exactly 2.45. This ratio demonstrates a strong cash flow position relative to net income, highlighting effective operational performance.

C (2.01) YOUR ANSWER

A ratio of 2.01 would imply cash from operations of approximately $4,892 based on the net income figure provided. This does not match the actual cash from operations of $5,964, thus making this option incorrect.

D (1.8) YOUR ANSWER

Selecting 1.8 would suggest cash from operations of around $4,374, which is again lower than the reported cash from operations of $5,964. This discrepancy confirms that this choice does not accurately reflect the calculated ratio.

Conclusion

The cash-flow-to-net-income ratio is a critical metric for assessing a company's liquidity and operational efficiency. In this scenario, the correct ratio of 2.45 indicates that the company generates significantly more cash from its operations than its net income, emphasizing strong financial health. The other options misrepresent this relationship, highlighting the importance of accurate calculations in financial analysis.

What is the cash-flow-to-net-income ratio for 20X2 given cash from operations $5,964 and net income $2,430?

The cash-flow-to-net-income ratio for 20X2 is 2.45.

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